Site Search Navigation

Site Navigation

Site Mobile Navigation

Joke Europeans

November 22, 2009 3:54 pmNovember 22, 2009 3:54 pm

I gather that this chart confuses people:

OECD, IMF

Why, people ask, would I want to compare us to Belgium and Italy? Both countries are a mess!

Um, guys, that’s the point. Belgium is politically weak because of the linguistic divide; Italy is politically weak because it’s Italy. If these countries can run up debts of more than 100 percent of GDP without being destroyed by bond vigilantes, so can we.

in Italy it is known that most Italian Bonds are hold by Italian people. Italians will lie on taxes but will lend their government the money so that they can run around. I do not know if this is possible for the US Debt.

I sense a little hostility towards Italy – a country that is vastly superior to your own in every facet of history, culture, accomplishments, beauty, etc. I sense a little jealousy. But, there are many reasons to be jealous, so I understand.

Sigh, so let’s get this straight. I am supposed to say that the sum i greater than the parts and I need a PhD to prove it? This is the logic that got us into this mess, wait til they securitise government debt into tranches and sell that off as more secure than any single government bond. Look if this level of debt to GDP is fine, why haven’t we always had it and why bother with taxes at all and just borrow. The answer to why not lies in the amount of dicretion left for the government of the day to spend that reflects the tax take less borrowings. Japan cant afford an interest rate and is consgined to the scrap heap. Belgium and Italy have Germany as a source of guarantee. When the interest bill is greater than the tax take and the tax take is above what the country can afford you have default, in reality if not acutaloty. We can dress it up anyway you like. When the interest bill exceeds a level that means taxes taken result in zero discretion you are structurally and morally bankrupt. So go right ahead and borrow now with a Fed manipulated yield curve and zero borrowing costs. Let’s see the impact when inflation kicks up to 4-6% and yield move to 10% and the current 12 trillion grows to 16 trillion (as planned by Obama) and the interest bill grows to 10-15% of GDP with all the promises made elsewhere.. I mean seriously, have you ever tried that tory with your bank manager?

You can add Ireland to that 100% list – if not right now, then over the next few years, according to the IMF*. The NAMA “Bad Bank” has yet to dip in to the kitty. Still, the Europeans are never going to match Japan’s Debt/GDP rate, which is expected to exceed 200% this year and next. Hey, it’s only bits of paper …

Without reconciling insolvent Wall Street banks we have just begun to add debt. It will take tens of trillions to prop up these banks while the economy stagnates ( if we are lucky) and the local, state and Federal Government go broke trying to keep even minimal social programs going.

Instead of committing 24 trillion dollars to loans, back stops and gifts to banksters shouldn’t we use our deficits to help people …

Once again Krugman skirts the real issue and doesn’t explain the role of insolvent Wall Street balance sheets in our current crisis.

It is not just public debt we should worry about. Private debt relative to GDP and combined public/private debt relative to GDP are off the charts high. We, as a country, have consumed and spent more than we produce and earn. The remedy for overspending and too much debt can’t be more spending and more debt.

You keep presenting this graph and insisting on its interpretation as proof that the US debt level is not too high.

Both Italy and Belgium have the Eurozone backing them up.

Japan is embarked on a path which no one understands. Perhaps you are indicating that you foresee smooth sailing for them?

The only significant point in what you think you know here is that the study of economics has no accountability. Assuming you are way off base here, eventually no one will ever care or remember what you insisted.

I noticed that each of the countries accumulation of debt, except for Belgium’s, is continuing to slope upwards, which hardly seems to support the idea that deficits can go on for as long as they’re expected to in the U.S. without unpleasant consequences. Perhaps their economies haven’t been derailed by bond vigilantes yet, and you may well be right that they won’t be, but nothing from these statistics reassures me at all about the prudence of such deep levels of deficit spending. Please explain it to me again like a child, because it’s still not clear to me what these stats prove. True, children might not be able to understand whatever explanation that might be provided, and it’s probably unreasonable to ask for tutoring here, but it’s not clear to me that any of those countries is out of the woods on deficit spending yet. It still seems to be a very weak argument to me, especially compared to most of your others on this subject, which were far more convincing about the need for much higher levels of stimulus.

Italy and Belgium are saved from the wrath of the bond markets by being in the Euro — before then, we used to pay extremely high interest rates on gilts (I remember that time well, being Italian;-). In theory the central European bank won’t bail out a Euro country in trouble — in practice, bond traders bet on the politics of it, especially for central/old-timer EU countries like Belgium and Italy. Not sure what’s propping up yen bonds (with the new government already foreshadowing further heavy borrowing), but if the US is interested in joining the Eurozone I think it should get started on the long application process;-).

Both have fared worse in the current downturn and the average rate of growth of the two combined during the last 10 years is nearly a full percentage point behind the US. The less said about Japan the better.

A better model to follow might be the resurgent Asian Crisis economies.

Paul, looks like you should have some sessions with the Times reporters, teaching them the basics of fiscal policy and bond markets. The article below is so poorly argued and full of false premises that even a first-year economics student would be able to punch holes. You must be feeling like Sisyphus.//www.nytimes.com/2009/11/23/business/23rates.html?_r=1&hp

Dear Prof. Krugman,
Finally you give me an opportunity, as Italian, to make a comment.
It is , indeed, true that Italy looks as a messy country…and it is also true that our debt runs at 115% and going up to 120%….BUT non one has ever considered that while the US PRIVATE DEBT IS OVER 100%. ours is LOWER than 50%.
Best regards.
Angelo

I’m always amazed at how the “science” of economics so often unmasks itself yet remains oblivious. Every person I’ve known (plenty) who have visited Italy rave about how the Italians seem happy, despite their challenges. They’re fabulously rich on an absolute scale, relatively rich even when only compared to other rich countries, and seem to have about the usual quota of fools and crooks in office. They work much less than we do, enjoy universal health care, and haven’t destroyed every inch of their country to create strip malls and interstates. Yet people in the US — a country with much worse public health statistics and lots more violence and corruption among officeholders (so much so that it’s completely unrecognized) — laugh at the Italians as if just mentioning “Italy” is a punch line.

By every measure of a decent society it seems the Italians have us beat; yet we look down at them. Weird.

You recognise that comparing US to Belgium and Italy was to say the least “confusing”. Yet it depends on who your bond vigilantes are. Belgium andf Italy (you could have added Greece) are within a Euro-zone where defaults are theoretically possible but technically difficult because it means to be expelled from the Euro. They have quite high saving rates and the Belgian treasury market is rather small.
On the other hand, your bond vigilantes are mainly Chinese…What if they decide just to diversify out from US treasuries? Are you happy with your foreign vigilantes?

Beg to differ. US currency is world’s currency thus its love or hate for deficit spending would have impact on $ thus on every business entity in the world.
Next 2-3 years would be traders paradise due to extreme volatility we would witness. Loads of money to be made and destroyed in next couple of years. Hope to be on the winning side.
Ensoi